How To Deduct Mortgage Interest From Your Taxes
Deducting Mortgage Interest from Your Taxes
Tax deductions can be an exciting topic for many Canadians. They are specific expenses that you incur during the tax year and can deduct from your taxable income to reduce the amount of money you are required to pay in taxes. When it comes to your mortgage, one of the most applied tax deductions is used to write off a portion of your mortgage interest payments. However, not all Canadian homeowners qualify. In this section, we explore the requirements for making use of this little-known tax shield.
What Counts as a Tax-Deductible Mortgage?
It is your primary residence
If you live in the US, you can write-off your interest payments regardless of whether your property is a house, co-op, condo, apartment, mobile home, houseboat, or something else entirely. The only caveat is that your home must have been used as collateral for the loan and must contain essential living amenities such as a place to sleep, a kitchen, and a bathroom to be considered. Unfortunately for Canadian homeowners, in Canada, most residential properties are not tax-deductible. There are however a few loopholes through which you may be able to utilize to write off some of your mortgage interest.
It is currently generating rental income
If you borrow money to purchase or repair a rental property, you can deduct the interest you pay on that loan. This means that a portion of mortgage interest is tax-deductible on many Canadian rental properties.The total amount of your mortgage interest is only tax deductible if you rent out your entire property for the entire year. If this is not the case, only the portion of the property and the portion of the year you rent it out (e.g., six months) might qualify for tax deductions for interest payments.You will not receive credit for your full interest amount if you are only renting out a portion of your home. In such cases, mortgage interest write-offs will be allocated proportionally using square footage as a measure.
Common Misconceptions: Deductions and Taxes
Only Rented Homes Have Tax-Deductible Mortgage Interest
The government-backed tax benefits of owning and operating a rental property also extend to other types of business operations. If you are operating a legal business or providing a professional service through the property, you may be entitled to a tax-deduction of your mortgage interest.You might also be able to deduct office costs, advertising fees, and even employee salaries. If you are working a remote job, you might even be able to write-off your in-home office as a business rental in certain circumstances.
You Cannot Tax-Deduct Your Interest After Refinancing Your Home
Your eligibility for mortgage insurance tax-deductions is based almost solely on the property’s use and income generation. If you refinance your property, you might still be able to write-off your insurance payments, so long as the property is still being used to generate income.If you are cutting yourself out of the mortgage contract completely, and ceasing insurance payments, the new payee might be able to inherit your tax benefits.
Working with a Brokerage is a Waste of Money
Whether you are looking for tax-deductions, better contract terms, or more, working with a mortgage broker can significantly increase your odds of success. Rajan Saggi, Mortgage Consultant, can help you ensure that the mortgage product you are getting is suitable for investment properties. If you are planning on renting out part or all your property, allow us to help make sure that you will not be putting yourself into default with your mortgage lender.
Rajan Saggi Mortgage Consultant prides itself on having strong working relationships with over 50 different mortgage lenders. This allows us to find the mortgage the best suits your individual needs and helps you achieve your financial goals. Let us help you save thousands of dollars over the term of your mortgage.Contact team Rajan Saggi today to get the best advice.
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